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Maximizing Gains from a USA-SACU Services Agreement

Learn about economic trends, GATS concepts and coverage, barriers to trade in services, and the potential contribution of a USA-SACU FTA. Discover how to make the agreement meaningful, comprehensive, and effective.

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Maximizing Gains from a USA-SACU Services Agreement

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  1. Getting the most out of a services agreement with the USA Matthew Stern US-SACU FTA Conference 31 October 2006

  2. Outline of Presentation • Economic trends and theory • GATS concepts and coverage • The gains from services liberalization • Barriers to trade in services • The potential contribution of a USA-SA FTA

  3. Economic trends and theory

  4. Key trends • 25% of global trade • Dominated by OECD (80%) • Increasingly important for developing countries • Fastest growing sector (trade & FDI) • Critical determinant of competitiveness • Labour intensive • Highly regulated 1

  5. World service exports ($ millions)

  6. Theory • Trade in services, in general, displays the same characteristics as trade in goods • The theory of comparative advantage does apply to services trade • Given high levels of regulation (protection) in the service sector, economic factors alone cannot explain the pattern of trade in services • The removal or reduction of barriers to trade in services would contribute to major increases in global welfare 1

  7. Service/merch. Exports Service/merch. imports 1

  8. GATS concepts and coverage

  9. What is GATS? • Implemented January 1995 • 140 member countries • All sectors (except government and air traffic rights) • Positive list approach • All modes of supply 2

  10. GATS: Coverage • Strong institutional & regulatory difference between jurisdictions • Financial services • Business services • Health services • Education Infrastructure services, capital intensive, scale economies • Communication • Transport • Traditionally “liberal” services • Distribution • Tourism • Other • Environmental services • Recreation • Culture • Sport • Construction Source: Adlung (2000) 2

  11. GATS: Modes of supply • Mode 1: Cross border supply • relatively few bound commitments • Mode 2: Consumption abroad • relatively open • Mode 3: Commercial presence • market access restrictions prevail • Mode 4: Movement of natural persons • most restrictive 2

  12. GATS: Commitments Source: GATT Secretariat (1994) 2

  13. GATS: South Africa • Scheduled 9 out of 12 major sectors (education, health and recreational services excluded) • Relatively liberal commitments in retail, computer, construction, tourism and business services • Relatively few commitments in transport, life insurance, communications and education services 2

  14. The gains from services liberalisation

  15. The gains from exports • Employment • Complementary exports • Foreign exchange • Knowledge and skills • Economies of scale 3

  16. The gains from exports – ‘Shopmight’ 3

  17. The gains from imports • Knowledge and skills • Product • Price • Quality • Capital and infrastructure 3

  18. The gains from imports – ‘Newtel’ 3

  19. Barriers to trade in services

  20. Types of barriers • Quantitative restrictions • Air service agreements • Price-based instruments • Electricity price controls • Licensing and certification • Tertiary education • Access to networks • National payment’s system 4

  21. Measures of protection - Hoekman 4

  22. Measures of protection - APC 4

  23. The potential contribution of a SACU-US FTA

  24. Pre-conditions • Meaningful • Comprehensive • Multilateral 5

  25. Making it meaningful • US is South Africa’s most important service export destination 5

  26. Making it meaningful • But trade largely restricted to travel 5

  27. Making it meaningful • And investment surprisingly low 5

  28. Making it comprehensive • Positive list approach • Excludes sensitive sectors • Maintains regulatory flexibility • Negative list approach • No sectors excluded • Prevents arbitrary discrimination 5

  29. Making it work • Enabling access to global imports and competition • Providing a template and signal for domestic reform • Facilitating deeper regional integration 5

  30. Conclusion

  31. Conclusion • The gains from trade and competition in services are big • Barriers to trade in services are complex and high • A SACU-US FTA could have multiple benefits • Lock-in existing reforms • Help determine a longer-term and regional reform agenda • Open up new opportunities for trade and investment at home and abroad • Make it meaningful, make it comprehensive, and make it work

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